Tesla Motors (TSLA) Chief Executive Elon Musk has taken his fight against traditional dealer networks to Texas, telling lawmakers his company could sell as many as 2,000 cars there next year if allowed to open its own stores.

Musk testified Tuesday before the Texas House Committee on Business and Industry in support of bills that would allow U.S.-based manufacturers of 100 percent electric- or battery-powered vehicles to sell directly to Texas consumers. Musk described it as a life-or-death issue.

At a news conference Wednesday in Texas, Musk said his company "should be allowed to sell our vehicles to the public rather than being forced through the franchise system." Musk later said in a news release that the ability to sell directly to customers through Tesla stores "is important for sustainable transportation and is the best chance a new electric car company has of succeeding."

Musk also believes existing dealers will have difficulty selling customers on the advantages of going electric without simultaneously undermining their traditional business of selling gasoline-powered cars.

But Texas Automobile Dealers Association President Bill Wolters wasn't about to be one-upped on the life-or-death struggle argument.


Advertisement

Even though the proposed change to the law seems limited in scope, Wolters said, "when you open that door and make factory ownership available there is always the potential that more automakers will try to take over the dealerships network and gain that revenue." That could mean the death of dealerships in small and rural communities, he said.

"While the Tesla legislation seems innocuous at this point, it opens that door," Wolters said.

Under current Texas law, Tesla can't sell vehicles directly to the public because it has no franchised dealer relationships there or anywhere else.

Tesla operates galleries in Austin and Houston where its employees are not allowed to discuss financing, leasing or purchasing options. The galleries also can't offer test drives.

Tesla's approach to selling cars has been viewed favorably on Wall Street by analysts including Brian Johnson of Barclays in New York.

"Ownership of the retail store experience is critical to the Tesla business philosophy," Johnson said. "Under the current Texas restrictions, they have to go through a lot of maneuvering that doesn't make a lot of sense from the customers' point of view."

"One thing we like about the Tesla strategy is full control over the retail channel," Johnson said. "It gives them the opportunity to have that Apple (AAPL) store appearance to customers. It helps make sure that customers are properly informed at the dealership. And it likely helps the overall longer-term margin structure."

The nation's roughly 18,000 new-car dealers got a cut of every one of the 12.8 million new cars and trucks sold in the U.S. last year. It's an exclusive arrangement that has made many of them very rich -- and one that they're not about to cede anywhere without a big fight. On average, dealers make about $1,300 on a typical new-car sale before expenses.

Some individual auto dealers and regional associations have filed lawsuits attempting to block Tesla, which operates 18 stores in 11 states and Washington, D.C.

Tesla has been on a hot streak. The Palo Alto, Calif., automaker sold about 4,750 of its Model S sedans in the first quarter, about 250 more than it had projected in February.

The Model S prices start around $60,000 and can top $100,000.

Wolters said it doesn't matter that the car has a limited clientele because of its cost. He said he wants to protect a Texas network of 1,252 dealers that is so vast that only the public school system is larger.

"There are dealers that would sell Teslas," Wolters said. "All the other manufacturers and makes comply with the state laws. (Musk) has to come under the same licenses and requirements, the same regulations and oversight. He has to play by the same rules."